Overview
FAR Subpart 31.6 establishes the cost principles used to determine the allowability of costs for contracts and subcontracts involving State, local, and federally recognized Indian tribal governments. It primarily directs these entities to the OMB Uniform Guidance (2 CFR part 200) while outlining specific statutory exceptions and unallowable costs that override or supplement those guidelines.
Key Rules
- Primary Authority: The principles for determining allowable costs are governed by 2 CFR part 200, subpart E and appendices V and VII (OMB Uniform Guidance).
- Version Control: The allowability of costs is determined by the version of the OMB Uniform Guidance in effect on the specific date of the contract.
- Statutory Unallowable Costs: Regardless of other guidelines, specific costs are strictly unallowable under 10 U.S.C. 3744 and 41 U.S.C. 4304, including:
- Entertainment: Social activities, tickets to shows/sports, and associated lodging or gratuities.
- Lobbying: Costs incurred to influence federal or state legislation.
- Legal Proceedings: Defense costs for fraud proceedings where the contractor is found liable or pleads nolo contendere.
- Fines and Penalties: Resulting from violations of law (unless specifically authorized by the CO in advance).
- Promotional Items: Advertising to promote the contractor, memorabilia, models, gifts, and souvenirs.
- Executive Compensation: "Golden parachute" payments in excess of normal severance.
- Travel: Commercial airfare costs that exceed standard commercial fares.
- Alcohol: All costs for alcoholic beverages are unallowable.
Responsibilities
- Contracting Officers (COs): Responsible for determining the allowability of costs in accordance with 2 CFR part 200 and ensuring that the specific statutory exclusions listed in FAR 31.603(b) are enforced.
- State, Local, and Tribal Governments (Contractors): Must maintain accounting systems capable of identifying and segregating unallowable costs and must ensure their cost proposals comply with the OMB Uniform Guidance.
- Federal Agencies: Are instructed not to place additional restrictions on individual items of cost beyond what is established in the regulations, unless required by statute.
Practical Implications
- Regulatory Bridge: This subpart acts as a bridge between the FAR (which usually governs commercial acquisitions) and the OMB Uniform Guidance (which usually governs grants). For State, Local, and Tribal governments, this provides a level of consistency across different types of federal funding.
- Strict Segregation of Funds: Entities must be extremely careful with "mixed-use" expenses. For example, a tribal government hosting an event cannot charge the federal contract for any portion involving entertainment or alcohol, even if the event is related to the contract’s mission.
- Audit Risk: Because these rules incorporate the False Claims Act and specific whistleblower protections, government entities face significant financial exposure if they inadvertently bill for "unallowable" legal defense costs or "promotional" activities.
- Standardized Airfare: Unlike some commercial contracts that may allow for business class under specific circumstances, this subpart strictly limits reimbursement to standard commercial fares, requiring government entities to have robust travel policies in place.